Clipped from: https://www.thehindubusinessline.com/opinion/editorial/rupee-tantrums/article70096990.ece
RBI has adopted right approach so far in managing rupee fall
The rupee has explored new lows in recent days, and is within touching distance of 90 to a dollar. Yet, it is worth noting that the slide of about 3.5 per cent in the present quarter, comparable to the rupee’s decline soon after the Ukraine war, is no real cause for alarm. With inflation in check (and not acting as a depreciation trigger), forex reserves comfortable and the current account deficit (CAD) under control, the rupee’s fall this time seems largely sentiment-driven. It is just as well that the Reserve Bank of India (RBI) has chosen to intervene lightly, rather than furiously inject dollars into the market to stem the decline — marking a departure from its heavy interventions in late 2024, and up to February this year. Apart from forex releases impacting reserves, they also drain domestic liquidity, a situation that India cannot afford when it is trying to promote credit at low interest rates.
There could be other motivations for the RBI’s hands-off approach. First, it is allowing the rupee to slide to offset the tariff cost impact as well as the loss of tariff competitiveness vis-a-vis emerging economies. Second, any effort to smoothen out rupee volatility, as was alleged with respect to 2023 and 2024, could once again invite criticism on India managing its currency. The RBI is right in adopting a light-touch approach. Yet, it should not allow the market to speculate on the rupee level itself, and second-guess its actions. In this respect, it needs to reckon with the fact the rupee fall has been a contrast to the appreciation of emerging markets’ currencies against the dollar in 2025, possibly due to skittish capital flows and geo-political uncertainty.
The fall in the rupee has been triggered by two immediate factors: the above 50 per cent penal tariffs imposed by the US and the huge hike in H-1B visa fees. These may hurt goods and services exports, besides remittances. However, even a rise in CAD (trade balance and remittances) from 0.6 per cent to 1.2 per cent of GDP, estimated by economy observers, is unlikely to upset the balance of payments apple-cart. Of course, any geopolitical shock that drives up commodity prices could lead to a different scenario. But as a recent analysis by this newspaper points out, while foreign portfolio investors have pulled out ₹1,38,580 crore ($15 billion) from equities this calendar year, their net investment in debt has been over ₹50,000 crore ($5.5 billion). According to the RBI’s September Bulletin, overall net foreign portfolio investment this month, in fact, turned positive up till September 18, sustained by debt inflows on the US Fed rate cut. India’s debt profile has been looking up with the S&P upgrade, as well as inclusion in global bond indices. Besides, net FDI flows reached a 38-month high in July.
There has also been a shift to gold in these turbulent times, even as the US debt situation and overvalued markets have been cause for concern. India should stick to keeping its growth up, notwithstanding these global headwinds.
Published on September 26, 2025
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